9. Innovative Distribution Company: A Total Cost Approach to Understanding Supply Chain Risk

Dr. Ted Farris, University of North TexasDr. Ila Manuj, University of North Texas

Introduction

This case illustrates the use of the total cost of ownership concept to analyze two supply chains, one international and one domestic. Students must calculate economic order quantity and safety stock quantities, then combine purchase price, shipping costs, and inventory carrying costs to quantify the differences between the two supply chains.

The domestic versus international aspects of the case allow the instructor latitude in discussing:

1. Differences in labor rates driving outsourcing

2. Use of exchange rates

3. Contrast INCOTERMS versus free on board ...

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